The next stage of the economic cycle may depend less on how much debt households and companies already have, and more on whether they are starting to borrow again.
That is the practical importance of the credit impulse. It measures the change in new borrowing, rather than the total stock of debt. This can be a more useful signal than headline credit growth because it captures the point at which private sector demand begins to improve or deteriorate.
If a household is paying down debt, its spending power is reduced. But if that household slows the pace of debt repayment, it has more money available to spend, even though credit growth remains negative. The direction of travel matters. A smaller drag from debt repayment can still support consumption, investment and growth.
That distinction is important because markets often focus on whether credit growth is positive or negative. A negative figure can suggest weakness, while a positive figure can suggest expansion. The shift from very weak borrowing to less weak borrowing can be enough to change the outlook.
Lower interest rates should support borrowing, but the expected recovery in credit has been slow to appear. Borrowing improved after the 2024 election and into early 2025, before policy uncertainty and weaker confidence held it back. Growth has therefore remained subdued.
Even so, this creates a clearer investment point. Private sector borrowing is still low. That means the downside may be limited, while the upside could be meaningful if confidence improves and lower rates continue to work through the economy. A positive shift in borrowing would be important for sectors tied to domestic demand.
Housebuilders could benefit if mortgage activity improves. Retailers could gain if households have more confidence and spending power. Banks could see stronger demand for loans. These are the areas where changes in credit conditions are most likely to show up first.
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